This research examines the concept of the minimum wage, and considers arguments favoring an increase in the minimum wage level in the United States. Arguments favoring an increase in the minimum wage level are considered within the framework of relevant microeconomic theory.
Microeconomic theory is concerned with the question of economic choices made by firms, households, and individuals.1Microeconomics is the study of trade offs, of opportunity costs, of substitution, of transformation, and of choosing between alternatives.2
Within the context of microeconomic theory, the theory of the firm is highly relevant to the consideration of arguments favoring an increase in the level of the minimum wage. The traditional concept of the theory of the firm holds that pri vate sector firms seek to maximize profits.3 Some contemporary
1E. V. Bowden, Economics: The Science of Common Sense, 5thed. (Cincinnati: South Western Publishing Co., 1989), 95.
3R. A. McCain, Microeconomic Theory (New York: McGraw Hill Book Company, 1982), 107.
2microeconomic theory, however, contends that private sector firms may seek to maximize something other than profits, such as gross revenue, revenue growth, or some form of utility.4
Another relatively recent development is the behavioral theory of the firm, which rejects the idea that firms attempt to maximize anything.5 The behavioral theory of the firm considers the fact that most contemporary firms are large, complex organizations with hierarchical managerial bureaucra cies, and, as such, are significantly affected by their environments.6 The behavioral theory of the firm conceives of the firm as being composed of a number of sub groups manage ment, employees, stockholders, customers, and suppliers whose conflicting needs and desires must be coordinated and, to the extent possible, satisfied.7 Within this concept of the theory of the firm, it is easily seen that the maximizatio...